'Margin Maineia' - Creating margin in your budget to work for you!

Helping families parcel together a working budget is crucial to financial success and ultimately independence. As a training tool I have created an interactive game I call ‘Margin Maineia’ in which participants pick an envelope with budget scenarios- take home income using Hollywood prop $100 bills (to make it feel real) and a card that outlines the amounts in the Needs / Wants / and Debt / Savings categories. These scenarios challenge the participants to figure out a way to re-allocate their expenses (come up with a cashflow gameplan) in order to create margin or maximize margin to attain wealth building goals. These categories should be re-labeled as Essential Life Expenses [4 walls of a budget: housing; food (groceries); transportation and utilities]; Lifestyle (most everything else- entertainment / recreation; dining out; gifting; miscellaneous) and the last category I should call wealth creation- through paying down and eliminating debt and savings / investment. The goal here is to keep the Essential expenses in life percentage wise as low as possible- 50% of income or less - or less than 70% if daycare is a part of the equation while the Lifestyle percentage is under control and the wealth creation percentage is maximized to do some real work. There is no one size fits all- however if a family has the median US household income of about $100,000 and their take home pay per month is around lets say $7,000 a month if their percentage splits are Essentials at 50% / Lifestyle at 45% / and savings at 5%- there needs to be a chat about looking at the big picture as in this situation $3,150 goes towards your lifestyle while only $350 a month goes towards creating wealth! Although this family is doing well with minimizing essential expenses- they are living way above their means and will at some point not have much to show for their hard work and who knows if they have enough in savings to absorb a financial crisis. A challenge for your: go into your budgets and look at the past 3 months of expenses. You can do it in one of three ways: Do it Old School- all accounts expenses per categories from statements or simply using your phone or computer to go through transactions and write it down on paper. Do it ‘Leo’ School - using a spreadsheet. Or do it tech savvy using a software that can retrieve the data and categorize for you- but be sure you go through it to re-categorize items as needed. After you have done this- what percentages are you at? Tips- the transportation expenses ONLY include - GMI- Gas, Maintenance and Insurance. So if you have car payments that goes into the last category. If you have investments (401k) at work taken out pre-tax- that does not count. This is strictly what you do with take home money. For example if you automatically save $100 a month towards Christmas savings- yes that is included in the last category. Certainly separating what you are paying in debt - paying others vs what you are paying yourself- savings- will be very helpful in giving you a decent look at what is going on. The last challenge is - what can you do- even the small things- that can change the percentages and move things towards that last category to grow your wealth. Remember we measure wealth in Net Worth- which is what you own minus what you owe. So every payment towards debt- and every penny actually saved or invested increases your net worth. Good luck and I am here if you need some guidance to get things turned around!